Targeting Career in Investment Banking is about understanding the role, the key responsibilities, skills required and towards the end of the blog are the commonly asked interview questions.
What is the role of Investment Banking?
If you were to explain the role of Investment Banking to someone who has no background in Finance then how would you explain?
An investment bank – is an entity which helps corporates to deploy or raise capital.
That makes sense now.
Next question is how they raise or deploy capital? They help raise capital through mixture of debt and equity. Raising of money can be achieved through select set of institutional investors or through Initial Public Offering (IPO) or through M&A activity (Mergers/Acquisitions)
Based on the above – we can segregate Functions of Investment Banking in three categories broadly.
- Research Function – This is team which does all the groundwork and most likely you will start your career in IB.
- Fundraising through IPO – This is the team which scouts companies who wish to raise money through IPO. The team analyses the feasibility o an IPO.
- M&A Activity – This is the team which is involved with entire functioning of Merger an Acquisition. Big 4 Audit companies have M&A arm which deals with transfer pricing too.
Investment Banking will require you to spend your entire day on analysing Industry and understanding finer nuances of Industry. In addition to this you will perform extensive Company Valuation exercise with proper arguments on Growth. At a senior level, you have to perform sales as well because without which you will not get deals. Understand here the sales is not like door to door sales 🙂 rather it is to convince a client with your valuation and growth projection.
Investment Banks outside India (situated in US, UK, Japan, Middle East) also have a Trading Desk. They generally trade in mortgages, exotic options and provide solutions to institutions through structured products.
Key skills required for a successful career in Investment Banking
- Financial Modelling
- Sector Research
- Negotiation and Sales
- MS Excel
- MS Powerpoint
Is CFA/FRM useful for this role?
CFA is useful to the extent that you will have understanding of all technical tools which will help you with Valuation. The limitation of CFA is that it will not teach you Sector Research – the onus is on an individual to learn or understand sector and sector specific numbers.
FRM is useful if you are a part of Trading Division within the Investment Banks. In India, trading desk related roles are not available.
- Tracking business development in the sector and target companies
- Identifying companies with potential fund raise
- Sourcing deals by meeting repetitively with the companies
- Preparing and making a presentation to clients
- Advising clients on potential equity/debt capital raising formats
- Execution of capital market transactions
- Due Diligence and preparation of offer document
- Ensuring all regulatory compliance required for SEBI and Stock Exchanges for IPO
- Coordination with all intermediaries of the issue viz. transaction lawyers, registrars, printers, ad-agency, escrow bankers etc.
- Support in preparation, updating, and customisation of organisation books & pitch presentation for capital market transactions
Commonly asked interview questions: (the list is not exhaustive)
- Is negative/positive working capital good/bad
- What are your views on online retail and why it is difficult/easy
Describe a recent M&A deal you have heard about and your views on that
Concept of Levered Beta and Unlevered Beta
What is more important : FCF or Profits
How to value a company if Cash Flow is negative
Any idea how companies decide to go for stocks swap or all cash deal
How do you value a synergy? Give example of operational synergy and financial synergy
- How do you determine what value of comparable to use with example
Courses from FinShiksha that should be helpful for this particular career role:
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About the Author
Have worked in the financial services industry for around 8 years now, and main areas of work have been Sector Research, Risk Management, Financial Modelling and Wealth Management.
Involved in the developoing content as a part of training in various Organizations like Kotak Securities, Motilal Oswal, Nippon Mutual Fund(erstwhile Reliance Mutual Fund), JPMC, Crisil.